New Economics Papers
on Collective Decision-Making
Issue of 2010‒02‒05
seven papers chosen by

  1. Choosing between Parliamentary and Presidential Governments. By Claudio Parés
  2. Rational Partisan Theory, Uncertainty and Spatial Voting: Evidence for the Bank of England’s MPC By Bhattacharjee, A.; Holly, S.
  3. Is it reasonable to allocate power to appointed regional authorities? By Claudio Parés
  4. Audit the Federal Reserve? By Barnett, William A.
  5. The Allocation of Decision-Making Authority when Principal has Reputation Concerns By Tamada, Yasunari; Tsai, Tsung-Sheng
  6. "Board's Monitoring and Retention of Sub-standard and Powerless CEOs" By Meg Sato
  7. "Insular Decision-making in the Board Room: Why Boards Retain and Hire Substandard CEOs" By Meg Sato

  1. By: Claudio Parés (Departamento de Economía, Universidad de Concepción)
    Abstract: Parliamentary and presidential systems dffer in the way citizens elect politicians in the executive power. In the first case they do it indirectly through the legislative power and in the second they do it directly. The main consequence of this is that ticket-splitting and divided governments appear in a presidential system. This may be seen as a problem or a opportunity by citizens because the trade-off between the loses in the political political bargainning process generated by cohabitation and the benefit of moderating the policy of extremist parties. This paper captures these features and compares both systems from a constitutional stage, i.e. when choosing ex ante what system to adopt from the standpoint of both citizens and political parties.
    Date: 2009
  2. By: Bhattacharjee, A.; Holly, S.
    Abstract: The transparency and openness of the monetary policymaking process at the Bank of England has provided very detailed information on both the decisions of individual members of the Monetary Policy Committee and the information on which they are based. In this paper we consider this decision making process in the context of a model in which inflation forecast targeting is used but there is heterogeneity among the members of the committee. We find that rational partisan theory can explain spatial voting behaviour under forecast uncertainty about the output gap. Internally generated forecasts of output and market generated expectations of medium term inflation provide the best description of discrete changes in interest rates, in combination with uncertainty in the macroeconomic environment. There is also a role for developments in asset housing and labour markets. Further, spatial voting patterns clearly differentiates between internal and externally appointed members of the Monetary Policy Committee. The results have important implications for committee design and the conduct of monetary policy.
    Keywords: Monetary policy, interest rates, Monetary Policy Committee, Committee decision making
    JEL: E42 E43 E50 E58
    Date: 2010–01–22
  3. By: Claudio Parés (Departamento de Economía, Universidad de Concepción)
    Abstract: Political decentralization involves an incentive game in which the President and regional authorities have to share power to provide public goods. In such a game, it is never reasonable to allocate political power to appointed Governors. In fact, when formal authority goes to the President —i.e. under administrative decentralization—, the maximization of the expected public good provision lead to allocate no real authority to Governors. In other words, mere delegation does not exist because regional incentives are not high enough. On the other hand, if formal authority is given to regions —i.e. under democratic decentralization where regional authorities are elected—, Governors may receive some real authority if their incentives are high enough. Additionally, other results of the model say that communication between regions makes the President more accountable and may revert a decentral allocation made under no communication. Finally, asymmetric regions prefer different power allocations and power concerns lead national politicians to avoid proposing decentralizing reforms.
    Date: 2009
  4. By: Barnett, William A.
    Abstract: An independent institute for monetary statistics is needed in the United States. Expanded Congressional audit would be a second best alternative, but would not fully address the needs and would carry risks.
    Keywords: Federal Reserve; data institute; audit; GAO; monetary aggregation; index number theory
    JEL: C82 E01 E50 E41
    Date: 2010–02–26
  5. By: Tamada, Yasunari; Tsai, Tsung-Sheng
    Abstract: This paper analyzes the allocation of decision-making authority when the principal has reputation concerns. The principal can either keep the authority, or delegate it to the agent, who has better information. An outside evaluator who forms the principal's reputation cannot observe who makes the decision. The key feature of this paper is that the principal can in°uence her reputation through her delegation policy. With reputation concerns, we show that the principal tends to keep too much the authority from the evaluator's point of view, even though sometimes her information is not good enough for her to make the decision on her own.
    Keywords: Decision-making authority; delegation; reputation concerns
    JEL: D23 L14 D82
    Date: 2009–11
  6. By: Meg Sato (Crawford School of Economics and Government, The Australian National University)
    Abstract: Do corporate boards look after shareholder interests? This paper shows that CEO replacement may exhibit excessive inertia, in favor of the incumbent board of directors. I show that even when there is no relationship between the board of directors and CEO, or no threat of the CEO.s power over the board of directors, there is a case in which the board wants to keep sub-standard CEOs.
    Date: 2010–01
  7. By: Meg Sato (Crawford School of Economics and Government, The Australian National University)
    Abstract: It is widely believed that corporate boards are overly reluctant to .re their CEOs. The conventional explanation for retaining a CEO regardless of his/her talent is that a CEO chooses the board members and has the power to .re them. However, very few studies have investigated how a new CEO is chosen. This paper explores an unexamined cause of board reluctance in removing a CEO: the incentive to minimize the leakage from the decision-makers. future surplus. I argue that this same logic provides the theoretical explanation for how a new CEO is chosen for both voluntary and forced CEO replacements. I show that this incentive of the incumbent board and CEO often departs from the shareholders.interest. In short, if the net surplus of the incumbent board and CEO is expected to be larger under an incumbent sub-standard CEO, or under an internal candidate rather than an external candidate, then they retain the incumbent sub-standard CEO or promote an internal CEO candidate, even though the expected corporate pro.t generated by appointing an external candidate is likely to have been greater.
    Date: 2010–01

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